Under-saving is not an illness

The Automatic Enrolment Bill is no cure for the epidemic of under-saving

Sorry Arc Pensions Law, sorry Rhiannon Barnsley, I am sure so sure of your diagnosis, people who don’t save are not sick.

Saving is a lifestyle choice and many people choose not to save , not because they are sick , but because they have other things to spend their money on than saving.

We do not compel people to save but instead set the safety net of state pension and pension credit at a low £10,600 pa. We say to people, if you don’t save , you must either have an alternative means to finance your retirement , ot you will be poor in retirement.

There are many people who are poor and happy in retirement. People get solace from religion, from family – from a host of non financial factors. People do not have to measure future happiness by the PLSA retirement income factors

However, lack of money is generally considered harmful to well-being and so we have a system of saving pitched at around the minimum level needed to keep a smile on the face.


Back in 1997 when I worked with Demos on a minimum household income to avoid destitution , it was thought to be around £10,000 (SERPS and OAP). Today, the floor is set at around £21,000 (both figures assume a couple in the household).

Back in the day, Demos argued that we would need to save around 12% pa to meet the shortfall between state provision (then around £6,000 per couple) . Today S2P and Pension Credit provide a higher joint income that takes people close to the PLSA’s minimum retirement income level of £25,000. Using today’s annuity rates, a DC pot of around £60,000 per couple – could provide enough income to top a couple up to a minimum standard.

It is tougher for single people who cannot share the big domestic items to do with housing and heating. The cost of living for a single person is not half that of a couple (look at holiday prices).

The truth is that happiness in retirement is not dependent on whether auto enrolment is set at 8% of band earnings or 12% of total earnings (the Australian target).  It is much more to do with expectations, family support and the consolation of religion (which counts for a lot more in a diverse culture than the agnostic indigenous Brit would give it credit.

When we talk of well-being , either in terms of financial or mental or physical, we need to be careful. We must not confuse the mantra of universal saving with wellness, we must not talk of “epidemics” of non-savers.

The Australian experience suggests that people welcome being nudged into higher levels of savings. People do not regard Super as a tax nor do people in this country moan greatly about AE contributions which they know are for their own good.

But we must accept that those who opt-out of savings, are making a decision that isn’t necessarily feckless and also accept that as long as they stay in employment, they will be back saving before long – typically rather less than 3 years. People who repeatedly opt-out may regret it in later years, but I suspect that those who do, have better reasons than we credit them for.

Binary judgements about saving lead to compulsion – a road less travelled in the UK than in Australia. We avoided compulsion and embraced auto-enrolment for good reason.

To give Rhiannon and Arc Pensions Law, credit, the bulk of their article is compassionate to the dilemma of those who have insufficient cash to save and pay the bills, the article argues for

The phased implementation of minimum contribution increases and a nuanced approach to diverse employment scenarios will be crucial in ensuring the success of these pension reforms.

But the underlying sentiment remains;  under-saving is considered a societal risk which – unless supressed , will become an “epidemic”. This view crosses an important line for me, it’s the line articulated by John Stuart Mill and it is a line we call “freedom”. Demos called its paper “reasonable force” and argued that the state could compel people not to be a “harm to others”. We have chosen to do that using the state pension system.

Auto-enrolment is a means to top-up the state pension and benefit system so that most people have headroom above poverty and can aspire to a decent standard of living from their “pensions”.

We accept, through the AE definition of “worker” that some people will be excluded from the top-up, those who cannot work, who are self-employed and those who chose not to work. They are not sick, nor are those who work and choose not to save. These people are making their own way and where they fall, a compassionate society helps them back on their feet.




About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in pensions and tagged , , . Bookmark the permalink.

Leave a Reply